Modern Middle ManagerPrimarily my musings on the practical application of technology and management principles at a financial services company.

Offshoring Investment Research

Saturday, December 03, 2005

Sometimes that Barron's subscription actually yields a good investment idea. Not because it helps me pick better stocks. Oh, goodness no. I'm a terrible stock picker, worse when I actually listen to someone else. No, in this case they had a brief sidebar article on a new trend in outsourcing -- sending investment research to India.

Our wealth management line of business has a razor-thin margin. To be honest, it's not very profitable and we don't have the kind of scale or retail distribution that makes it incredibly successful like a Northern Trust or Merrill Lynch. So what does that leave us? Making what we have more profitable. If we could save 20%-30% a year in investment research costs by outsourcing that internal function, we would improve our margins for that line of business by about 10 basis points. Does that make it worthwhile? If it turns a not-so-profitable product into a profitable one, yes. If it outsources a few IR jobs to keep several other jobs, yes. At the end of the day, competitive advantage and shareholder value win.

I've read pundits who predit that the CIO/CTO function will eventually wither away, either outsourced or subsumed into some other business function(s). That day will be loaded with irony for me. Hope I like it.